What Value Does a Buyer’s Agent Add?

The Billion Dollar question!!!  I received this email from a TrueGotham reader yesterday:

I am considering purchasing in a new condo development.

I understand there’s little value added with a buyer broker in this situation.

I don’t have a broker, though obviously I could find one.

I’m told I might be better off seeking a discount on purchase price or
asking seller to pick up closing costs rather than involve a broker.
It is hard to see where the broker would add $40,000 of value for me.

Do you have a view?

Thanks for any tips.

This is not the first time that my clients or TG readers have asked this question and I don’t suspect it will be the last.  Here’s my response:

Absolutely see your point and would generally agree that you could do better without "most" brokers/agents. That said, if you have already visited the project, I would consider not bringing an agent into the picture now. But, if you can find someone who is VERY familiar with the
project, perhaps knowing the marketing agent or developer, that relationship could indeed be more valuable than $40K.

So you see it’s not so cut and dry. I’m a fan of having an advocate in my corner who actually knows what they are doing. Unfortunately in the real estate industry, that can be a difficult task. If you do decide to go it alone, ask the on site agent what they typically pay brokers and
ask for at least that as a discount.

Hope this helps and good luck.

More questions from this gentleman:

I really appreciate the prompt response.
I would add:

1) I did visit the project (why do you believe that makes a difference?), but hedged my bet saying I did work with someone but they are out of town, wink. The seller broker suggested that the developer would have a "preference" for unrepresented buyers (if there’s competition, you are handicapped). My risk: I get no discount and no broker either; or a useless broker and a handicap.

If I stay unrepresented, am I better off getting a commitment for a concession up front, or bring it up later in the process? also: a) I have a friend who is a broker, but clueless; I’d prefer the
$$ go to her than the developer all things being equal. b) I’m told attorneys can take a simple test and pay a fee to become qualified brokers. I am an attorney. If I were a broker, would I have a claim to the $40k?

2) Somewhat unrelated question, but this place is on the cusp of what I can afford. I considered the idea of renting it for a while to ease the pain. Do you know if any good calculators to see just how things would work out (the tax situation gets complicated ….). I attach a pretty good one I found, but it doesn’t consider NY taxes ….

Thanks again.

This is a situation that many of my family, friends, clients and colleagues talk about endlessly.  What value does a buyer’s agent add to a transaction?  My response to this reader’s last email:

I asked if you had visited project because I knew that agent would inform you of developer’s preference that you were working with no one. No secret that developer and buyer can do better without that $40k expense. More room for negotiation. A real argument here over what value a buyer’s agent brings to any transaction. I would absolutely go back and ask for a concession up front since you’re working without representation. You would have to ask the on site agent about whether or not they would pay you the commission. As an attorney, you are a licensed broker (I know nothing of any test, but that’s your realm?). I still think it’s best to have the reduction in price so you don’t pay tax on commission income. Love the tax calculator you attached (care of Mortgage-Investments.com)…best I’ve seen.  NYC property taxes are accounted for. You should be able to get a rough idea of state tax implications just by asking your accountant. But as far as I see, almost every detail is included in this analysis.

Good luck! BTW..given the glowing review of your friend the agent, I would stay away from using her for this deal.

So should you use a buyer’s agent or not?  As you can see from this email string with one of my readers, I don’t have a straight cut and dry answer.  I will say that 95% of my business is representing sellers and when I do work with buyers, I feel like I and many of my colleagues add value to the transaction by bringing professional insight and negotiating experience to the table.  As a seller’s agent, I wish that every buyer was represented by a solid, well-seasoned professional to make all transactions smooth and efficient.   All too often, that’s not the case. 

Part of the problem in our industry is that lines of communication are so poor that both buyers and their agents have difficulty trusting one another during the process.  I believe that trust is a very important factor when considering an agent in the purchase process.  Similarly, the "buyers are liars" phrase doesn’t come from nowhere.  There is very little loyalty and no binding agreement between buyers and their agents to encourage loyalty.  This mutual distrust that agents and buyers have continues to be an obstacle to an efficient market.  Buyer’s agency in Manhattan may be an answer. 

In the meantime, buyers and agents alike need to be discerning about with whom they work.  If not, a great deal of time and money will potentially be wasted.  Buyers and agents also need to shift their perspective of one another.  With information becoming much more public, buyer’s agents need to bring more to the table than simply searching for property.  Buyers need to select an agent who has an extensive knowledge of the marketplace and a proven negotiating history not focusing as much on what listings an agent provides.  As a buyer, you can search listings on your own…and maybe you should.